However contrary to what had happened in the past, this time the so-called “Blue skies in Beijing” phenomenon will have a positive effect on not only the commodities market but the dry bulk shipping market in different ways.
“As countries get richer they assign a lot more value to this and I think that’s what China has been moving towards,” said Bloomberg Intelligence Asia Pacific transport analyst Rahul Kapoor.
2017 was a very good year in terms of these emerging developments such as greater use of high grade ore and coal, he noted, pointing out that the value assigned to clean skies will progressively become higher than that from using low quality commodities, said Kapoor.
With China trying to produce higher grade steel and in the process trying to reduce pollution, the Asia giant will need higher grade iron ore and coke, this will inevitably lead to more imports as well as higher ton-mile demand as importers go further in search of better quality products such from Vale in Brazil.
“China is really accelerating the closing down of their coal mines,” noted Precious Shipping md Khalid Hashim, adding that the same situation is happening in the iron ore sector and adding that this kind of mass directive is unheard of anywhere else in the world. “Please keep in mind, don’t apply normal economics to the Chinese world,” he pointed out.
On another hot commodity trade issue, Hashim also largely discounted the effects of any US-China trade war on the soybean trade. He suggested that it would probably be positive for the dry bulk market.
With demand for soybean meal in China likely to hit 100m tons this year, even if China took the entire 82m tons that Brazil produces, this will still leave a shortfall of 18m tons that has to be made up for with soybean meal. This is turn will lead to a 27% increase in capacity needed because of the different storage characteristics of the product, Khalid suggested.
This is because Brazil is not only further away, leading to higher ton-mile but also its ports are less efficient and thus there could be delays.